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Personal longevity risk: Defined contribution pensions and the introduction of an ‘equilibrium retirement age’

Authors
  • Madsen, Chris
  • Tans, Martijn1
  • 1 AEGON Global Pensions, The Hague, 2501 CB, The Netherlands , The Hague (Netherlands)
Type
Published Article
Journal
Pensions: An International Journal
Publisher
Palgrave Macmillan UK
Publication Date
Aug 31, 2012
Volume
17
Issue
3
Pages
169–176
Identifiers
DOI: 10.1057/pm.2012.19
Source
Springer Nature
Keywords
License
Yellow

Abstract

Madsen and Tans address longevity protection for people with Defined Contribution (DC) plans, focusing on variable retirement. The authors introduce the concept of an ‘Equilibrium Retirement Age’ and show how this increases as life expectancy rises. The authors demonstrate how an individual can achieve equilibrium between capital accumulated through work and capital required in retirement. They derive a closed-form formula for a simplified version of the equilibrium challenge and show how this can provide insight into the trade-offs a DC plan participant faces.

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